US ethanol ‘critical’ without higher federal mandate - RFA

23 February 2009 20:09[Source: ICIS news]

(adds dropped € in paragraph 3)

WASHINGTON (ICIS news)--US bio-ethanol refiners said on Monday that the federal government must raise the existing 10% ethanol blend mandate or the viability of the nation’s biofuel industry will become critical.

“American ethanol production is quickly careening toward the blend wall - that moment when ethanol production and use is equal to 10% of the nation’s gasoline supply,” said the Renewable Fuels Association (RFA).

Under existing law, known as the renewable fuel standard (RFS), ?xml:namespace>US gasoline refiners receive a 45 cents/gal (€0.09/litre) tax credit for using bio-ethanol in fuel blends.The RFS mandates increasing annual consumption of ethanol and other biofuels as part of the US transportation fuel mix.

However, the ethanol content of retail gasoline is capped at 10%, and US domestic production of ethanol - which is wholly corn-based - is nearing the point where production capacity will exceed the mandated demand created by the tax credit and the 10% blend mandate.

“Without a change in federal standards, that level of ethanol use [10%] will undermine the goals of the RFS and become an unwarranted cap on the growth of this industry and the development of next generation technologies,” the association said in its annual industry outlook issued on Monday.

“Whether it is 13, 15 or 20%, increasing the volume of ethanol blended into each gallon of gasoline is critical to the future of America’s ethanol industry,” the RFA outlook said.

As part of the US economic downturn, the US biofuels industry has been beset by excess capacity amid moderating fuel demand.One major corn ethanol refiner and at least five others declared bankruptcy in 2008 and other producers are said to be facing financial collapse.

A consulting study commissioned by the RFA and also issued on Monday noted that 23 ethanol refineries were idled last year, taking 1.7bn gal (6.4bn litres) of annual capacity offline.

The RFA’s annual outlook said that as of last month, US bio-ethanol production capacity stood at 12.5bn gal/year but that production output had been cut - through bankruptcies or just reduced operating levels - by about 1.9bn gal to 10.6bn gal/year.

Even as operating levels are nearly 2bn gal/year below existing capacity, the RFA said expansion of existing ethanol refineries and construction of new plants will add slightly more than 2bn gal/year of additional capacity.

The RFA said that the 10% blend cap for ethanol must be raised in order to absorb existing and planned ethanol productive capacity.

“It is critical that the arbitrary limit on ethanol blending - today capped at 10% of each gallon of gasoline - be removed,” said RFA president Bob Dinneen.